Six steps to securing your kids’ financial security

*This content is brought to you by Brenthurst Wealth

By Charize Beukes* 

It’s very easy for modern parents to feel anxious about the uncertain future their kids face, especially their financial future. This is only natural because there are so many external influences that you can’t control.

Charize Beukes

However, there is one area where you can help them and give their future more certainty. And that’s by following a few simple steps that will give them a more solid financial footing from which to go into the world.

Step 1: Teach them financial fitness

Start by breeding healthy financial habits in your children so that they understand the value of money from a young age.

A piggy bank in their toddler years can be replaced by a savings account that they use to save their allowance or cash deposits receive instead of material presents.

It’s only by talking to them and exposing them to how money works that they truly learn the benefits of saving for something they desire. In the process they learn about independence and financial responsibility.

If well taught, these are lessons they’ll take into their adulthood and apply to life’s bigger financial decisions. And remember, kids copy what they see. So, it’s your responsibility to set a good example.

Step 2: Save for their education

Their university education is probably the last thing on your mind when your new-born is lying wrapped up in your lap, cooing in delight.

However, there’s no time to lose. Giving your kids the best chance at success means getting them into the best schools and tertiary education you can afford. And the best way to afford the best is to start saving from day one.

It’s estimated that a year at a private primary school will jump from around R100,000 in 2020 to more than R150,000 in 2025 and nearly R240,000 by 2030. Another five years later, you’ll be looking at more than R360,000.

Private high school costs are predicted to rise from R160,000 in 2020 to R250,000 (2025) then R380,00 (2030) and nearly R600,000 by 2035. Average yearly university costs look cheap by comparison, growing from about R70,000 in 2020 to R107,000 (2025) then R165,000 (2030) and up to R255,000 by 2035.

By investing as little as R1 000 a month from the time your child is born, a nominal annual growth of 10% will provide you enough to pay for their education.

Step 3: Prepare for the worst

Your best-laid plans will all be for nothing if you haven’t prepared for the absolute worst.

And the best way to do that is to take care of your family’s well-being by providing for them when you pass.

Your first line of defense is a life insurance policy that will provide for your family in your absence. These life contracts are fairly standard and easy to implement, but it always helps to speak to a trusted financial advisor. Especially because your life policy benefits should be distributed in accordance with your will.

Your last will and testament is central to passing on your assets and responsibilities to your family. We have expert knowledge in this because we are constantly working with investors to ensure their assets are optimally protected, yet available to care for their loved ones.

Step 4: Use a Tax-Free account

Apart from saving for specific goals like education, it seems foolish to not make use of the tax-free benefits offered by Treasury’s tax-free saving framework.

This allows you to save R36,000 a year up to a life-time limit of R500,000 into approved tax-free instruments. The big attraction is that your child will pay no tax on the dividends, interest or capital gains earned over the investment period.

The below graph, based on certain assumptions, shows that if you keep the money invested until your child turns 30, the value of the tax-free investment will be 42% greater than the equivalent taxable investment. By retirement age (65), this difference doubles the value of the same taxable investment.

This shows that resisting the temptation to disinvest from the fund prematurely can result in significant returns that provides your kids with a healthy start so they can build a business, buy a first home or invest further for retirement.

Source: Coronation

Assumptions: 45% Tax rate, CPI+ 6% growth p.a., R36 000 annual contribution up to R500 000 lifetime limit.

Step 5: Look after number one

The best way that you can lower your burden in retirement on your children is to prepare sufficiently for your own financial well-being.

So, engage with a financial advisor who can help you to take care of your responsibilities to your family by taking care of your future. Failing to do so could put a tremendous financial burden on your 30-something year old kids who themselves are still trying to build their lives.

Step 6: Get professional advice

Your responsibility as a parent is to care for your children. Not to be an expert in financial markets and how they’re going to perform over the coming 18 years that your newborn will be growing up.

The easiest way to navigate this process is to speak to an accredited financial advisor who can guide you on how to achieve your goals. You’ll be rewarded many times over by counting on the expertise of financial advisors and the insights we get from high-experienced fund and wealth managers.

  • Charize Beukes is an Assistant Financial Planner at Brenthurst Wealth Pretoria. [email protected].

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